A recent judgment by the U.S. District Court for the District of Oregon requires the owner of a courier service, Gerald Brazie, Jr., and three of his Portland-based companies (Senvoy LLC, Driver Resources LLC, and ZoAn Management Inc.) to pay their drivers $3,087,100 in wages and liquidated damages as well as $112,900 in civil money penalties for violations of the Fair Labor Standards Act (FLSA). The companies must also classify all drivers as employees and obtain a third party audit to ensure compliance with the FLSA.

The companies initially classified the drivers as employees but converted them to independent contractors in 2010. As independent contractors, drivers were not paid overtime, minimum wage, or reimbursed for the costs of operating and owning or leasing their vehicles. The change in classification reflected an attempt to keep up with competitors who treated drivers as independent contractors pursuant to a common industry practice.

The District Court evaluated the relationship between the companies and drivers and ultimately found the drivers should be classified as employees based on the FLSA’s economic realities test. For example, the company controls the manner in which the work is performed in several ways including requiring drivers install a specific cell phone application for GPS tracking, requiring drivers wear uniforms, and preventing drivers from freely rejecting work. The drivers have little ability to profit depending on their own managerial skills because of limitations on hiring their own employees and working for other employers. These and other factors outweigh the fact that the drivers invest in their own vehicle, cell phone, uniform, fuel, and insurance, which tend to weigh in favor of an independent contractor classification.

This case is an important reminder that industry practice is not a defense to worker misclassification, and businesses should conduct a careful analysis to ensure compliance with federal and state law.